Among several operational planning tools such as the roadmap, the business plan provides information on the past, present and future of the company. It contains statements, the market situation, planned measures and financial requirements. The Ecommerce business plan is special because it uses levers specific to the web and distance selling (traffic, transfo tx, …).
The business plan must be simple and comprehensive, it will help you to define :
selling prices and profitability
How long will it take you to pay back your investment
Define the payroll
The number of visitors to reach the break-even point
An economic activity dashboard
The three main calculation axes of your Business-plan
Visitors coming from search engines (natural referencing),
Paid traffic (advertising or a sponsored link)
From visitors you have directly prospected (emailling.)
The Conversion Rate (TC): This is the percentage of visitors converted into customers. In general, the more qualified your traffic is, the better the TC). It is always difficult to evaluate, but an e-commerce site that is just starting out and that is well thought out can expect an average conversion rate of 1%. It can then go up to 7%.
Additional parameters to take into account
The financial elements of constitution :
The Amortization Period : the period foreseen for the total repayment of the investments (credits, purchases of equipment,…) ;
Working Capital Requirement (WCR): the cash flow gap resulting from your company’s current activity;
Profitability Threshold (SR): the moment when your profits exceed your company’s expenses;
Margin Rate = Gross Margin (Sales price excluding VAT – purchase cost) / Purchase price excluding VAT x 100. This formula establishes the share of the margin in the purchase price. To calculate a sales price from this rate we follow the formula PVHT= PAHTx 1+ margin rate (ex. if margin rate 30% we will have 1.30).
Monthly coefficients will have to be applied to expenses and turnover:
Start-up period: the advertising campaign will often be more important at the beginning to launch the activity…
Seasonality: you will quickly notice differences in turnover according to the months. Calculate these differences the first year to estimate those of the years to come.
The levers specific to Ecommerce
Paid traffic: in the form of advertising banners, sponsored links, emailling campaigns,…paid traffic is (unlike natural traffic) controllable, even quantifiable and even well qualified if you do it right.
The Customer Acquisition Cost (CAC): it is the sum of the expenses generated to acquire 1 customer divided by the number of new customers generated. Thanks to the CAC you know when a new customer places an order how much it costs you. If the gross profit that you can make from this order is less than this cost you know from the start that you are losing money.
Loyalty: a customer who comes back to place a new order is interesting, because you have already paid the acquisition cost. It is therefore intrinsically more profitable than a new customer.
The cost of loyalty: email, promotions made to loyal customers…
The Customer Life Value (CVV): a way to calculate average turnover and average customer profitability over the long term.
Typical charges generated by the activity: V.A.D. Contract, site maintenance, Hosting, Emailing solution with tracking, Google Adwords Budget Calculation, Microsoft Adcenter, Affiliation, Paper & Packaging, SEO Agency, Postage and packing, Computer troubleshooting, Realization of advertising banners.
Establish your calculation bases
Determine your potential turnover with the formula: “Average Basket” multiplied by “Traffic” divided by “Conversion Rate”: PM x (Trf / TC)
Then you can calculate whether this turnover enables you to achieve profitability in relation to your expenses (fixed and variable).
If some expenses will be easy to predict (rent, salaries, …) others will be mostly by extrapolation (budget com for example).
At the beginning your “Business Plan” will allow you to check the profitability of your site. But can to can, extrapolations will be replaced by reality and the “Business Plan” will serve as a dashboard of the profitability of your business.